The Oil Price Crisis: What Is The Economic Cost To The U.S.?

Dec. 27, 2014 12:32 PM ETAAL, CLR, FDX, LUV, UAL, UPS, X66 Comments
David White profile picture
David White


  • The price of WTI oil has fallen roughly -$50/barrel in the last 6+ months.
  • With US production at about 9 million barrels per day, this amounts to roughly a -1% drop in the US GDP.
  • When you add in the price drops in "finished petroleum products", the drop in US GDP may be -2.6%.

Virtually everyone has noticed the price of WTI oil fell dramatically since June 2014. Many in the US and elsewhere have been very happy to see the price of gasoline and other fuels decline considerably in the last seven months. Many have touted the positive effects the monies not spent on gasoline may have on the US economy. They believe such monies will be spent elsewhere; and that will supposedly stimulate the US economy. However, there may be significant flaws in that logic.

First the US will lose all of the revenues it derived from the higher price of oil. WTI oil prices fell from $107.68 per barrel on June 13, 2014 to a low so far of $53.60 on December 18, 2014. They closed on December 26, 2014 at $54.73 per barrel. This is more than -$50 per barrel below the June 2014 high. In November 2014, the US produced about 9 million bopd. Over a one year period the loss of about -$50 per barrel of oil revenues would amount to 9,000,000 bopd * 365 days * $50/barrel = $164.25B. For 2015 this number will be a little higher as production is expected to average 9.3 million bopd (so -$169.7B). This amounts to approximately -1% of the US GDP by itself. When you add in all of the losses due to the price falls of all the finished petroleum products, the number becomes much larger. For instance, the average price of US gasoline in December 2013 for regular unleaded was $3.268/gallon. The average price this December (2014) is $2.324/gallon. That is a 28.9% drop.

As a ballpark figure I will estimate that other finished petroleum products suffered like drops. Roughly this means that the 19.1 million bopd expected to be consumed in the US in 2015 translate into 42

This article was written by

David White profile picture
David White is a software/firmware/marketing professional and a long time investor. He has worked in the networking field, the semiconductor equipment field, the mainframe computer field, and the pharmaceutical/scientific instrumentation field. He has bachelor's degrees in bioresource sciences and biochemistry from U.C. Berkeley. He is a former Ph.D. student in biochemistry. He has done significant graduate work in EECS and business at Stanford (through SITN) and UC Santa Cruz. He was awarded a Certificate in Advanced Software Systems (about 1/3 of an MS in EECS) by the Stanford Computer Science Department. He also took most of Stanford's undergraduate Computer Science curriculum. He has been nominated for many separate Nobel Prizes (Economics and Peace). He was a small part of a team that won the Nobel Prize in Medicine. He provided the theory for a different nomination for a Nobel Prize in Medicine/Physiology. He came extremely close to winning the 2014 Nobel Prize in Economics. There are about 3000 nominations for each prize; but since the same people are often nominated multiple times the 3000 nominations lead to only about 250 to 350 nominees worldwide in a given year. With about 7.5B people in the world, the odds of getting multiple Nobel nominations are about (4 x 10**-8)**n where n is the number of distinct nominations.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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